| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 2 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES Basis
of Presentation and Consolidation The accompanying consolidated financial
statements include the financial statements of the Company and its 100% owned subsidiaries of Shuhai Skill (HK), Tianjin Information
and its VIE, Shuhai Beijing. VARIABLE INTEREST ENTITY Pursuant to Financial Accounting Standards
Board ("FASB") Accounting Standards Codification ("ASC") Section 810, "Consolidation" ("ASC
810"), the Company is required to include in its consolidated financial statements, the financial statements of Shuhai Beijing,
its VIE. ASC 810 requires a VIE to be consolidated if the company is subject to a majority of the risk of loss for the VIE or is
entitled to receive a majority of the VIE's residual returns. A VIE is an entity in which a company, through contractual
arrangements, bears the risk of, and enjoys the rewards normally associated with ownership of the entity, and therefore the Company
is the primary beneficiary of the entity. Under ASC 810, a reporting entity has a
controlling financial interest in a VIE, and must consolidate that VIE, if the reporting entity has both of the following characteristics:
(a) the power to direct the activities of the VIE that most significantly affect the VIE's economic performance; and (b)
the obligation to absorb losses, or the right to receive benefits, that could potentially be significant to the VIE. The reporting
entity's determination of whether it has this power is not affected by the existence of kick-out rights or participating
rights, unless a single enterprise, including its related parties and de - facto agents,
have the unilateral ability to exercise those rights. Shuhai Beijing's actual stockholders do not hold any kick-out rights
that affect the consolidation determination. Through the VIE agreements, the Company
is deemed the primary beneficiary of Shuhai Beijing. Accordingly, the results of Shuhai Beijing have been included in the accompanying
consolidated financial statements. Shuhai Beijing has no assets that are collateral for or restricted solely to settle their obligations.
The creditors of Shuhai Beijing do not have recourse to the Company's general credit. VIE Agreements Operation
and Intellectual Property Service Agreement Shareholders'
Voting Rights Entrustment Agreement Equity
Option Agreement Equity
Pledge Agreement The Company's total assets and liabilities
presented in the accompanying consolidated financial statements represent substantially all of total assets and liabilities of
the VIE because the other entities in the consolidation are non-operating holding entities with nominal assets and liabilities.
The following financial statement amounts and balances of the VIE were included in the accompanying consolidated financial statements
as of June 30, 2019 and 2018 and for the years ended June 30, 2019 and 2018, respectively:
June 30, June 30,
Current assets $ 1,573,413 $ 1,173,521
Non-current assets 96,927 141,688
Total assets $ 1,670,340 $ 1,315,209
Current liabilities $ 6,232,836 $ 4,476,483
Non-current liabilities - -
Total liabilities $ 6,232,836 $ 4,476,483
For the years Ended
2019 2018
Revenue $ - $ 10,571
Gross profit - 4,819
Net loss $ (1,432,372 ) $ (1,547,467 ) USE OF ESTIMATES The
preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. The
significant areas requiring the use of management estimates include, but are not limited to, the estimated useful life and
residual value of property, plant and equipment, provision for staff benefits, recognition and measurement of deferred income
taxes and the valuation allowance for deferred tax assets. Although these estimates are based on management's knowledge
of current events and actions management may undertake in the future, actual results may ultimately differ from those
estimates and such differences may be material to our consolidated financial statements. Contingencies Certain
conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the
Company but which will only be resolved when one or more future events occur or fail to occur. The Company's management
and legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In
assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may
result in such proceedings, the Company's legal counsel evaluates the perceived merits of any legal proceedings or
unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought. If the assessment
of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be
estimated, the estimated liability would be accrued in the Company's consolidated financial statements. If the assessment indicates that a potential
material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, the nature of the
contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed.
As of June 30, 2019 and 2018, the Company has no such contingencies. Cash
and Cash Equivalents Cash and cash equivalents include cash
on hand, demand deposits and short-term cash investments that are highly liquid in nature and have original maturities of three
months or less. Inventory Inventory, comprised principally of electronic
student cards and routers to be used in installations, is valued at the lower of cost or net realizable value. The value of inventory
is determined using the first-in, first-out method. The Company periodically estimates an inventory allowance for estimated unmarketable
inventories when necessary. There were no allowances for inventory as of
June 30, 2019 and 2018. Deferred REGISTRATION
Costs Deferred registration costs are comprised
of certain legal, accounting and other third-party fees that are directly associated with in-process equity financings as deferred
registration costs until such financing is consummated. After consummation of the equity financing, these costs were recorded in
stockholders' equity as a reduction of additional paid-in capital generated as a result of the offering. The Company incurred deferred
registration costs of $72,532 as of June 30, 2018 that was subsequently reclassified to additional paid-in capital after the Company
successfully completed its initial public offering on December 21, 2018. ESCROW Escrow represents cash held for an indemnification
related to requirements with the underwriter for a period of 18 months or longer subsequent to the common stock offering (See note
9). PROPERTY AND EQUIPMENT Property and equipment are stated at cost,
less accumulated depreciation. Major repairs and improvements that significantly extend original useful lives or improve productivity
are capitalized and depreciated over the period benefited. Maintenance and repairs are expensed as incurred. When property and
equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts,
and any gain or loss is included in operations. Depreciation of property and equipment is provided using the straight-line
method over estimated useful lives as follows:
Furniture and fixtures
5-10 years
Office equipment 3-5 years
Vehicles 5 years INTANGIBLE ASSETS Intangible assets with finite lives are
amortized using the straight-line method over their estimated period of benefit. Evaluation of the recoverability of intangible
assets is made to take into account events or circumstances that warrant revised estimates of useful lives or that indicate that
impairment exists. All of our intangible assets are subject to amortization. No impairment of intangible assets has been identified
as of the balance sheet dates. Intangible assets include licenses and
certificates and are amortized over their useful life of five to ten years. FAIR VALUE MEASUREMENTS AND DISCLOSURES FASB ASC Topic 820, "Fair Value Measurements,"
defines fair value, and establishes a three-level valuation hierarchy for disclosures that enhances disclosure requirements for
fair value measures. The three levels are defined as follows:
● Level 1 inputs to the valuation methodology are quoted
prices (unadjusted) for identical assets or liabilities in active markets.
● Level 2 inputs to the valuation methodology include
quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability,
either directly or indirectly, for substantially the full term of the financial instrument.
● Level 3 inputs to the valuation methodology are unobservable
and significant to the fair value measurement. The carrying value of cash, inventory, prepaid expenses and
other current assets, accounts payable, advances from customers, accrued expenses and other payables, and loan payable-shareholder,
approximate their fair values due to their short maturities. As of June 30, 2019 and 2018, the Company
did not identify any assets and liabilities that are required to be presented on the balance sheet at fair value on a recurring
basis. IMPAIRMENT OF LONG-LIVED ASSETS In accordance with FASB ASC 360-10, Accounting
for the Impairment or Disposal of Long-Lived Assets, long-lived assets such as property, plant and equipment are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable, or it is reasonably
possible that these assets could become impaired as a result of technological or other industrial changes. The determination of
recoverability of assets to be held and used is made by comparing the carrying amount of an asset to future undiscounted cash flows
to be generated by the asset. If such assets are considered to be impaired,
the impairment to be recognized is measured as the amount by which the carrying amount of the asset exceeds its fair value. Assets
to be disposed of are reported at the lower of the carrying amount or fair value less cost to sell. During the reporting periods
there was no impairment loss recognized on long-lived assets. REVENUE RECOGNITION On January1, 2018, the Company adopted
Accounting Standards Update ("ASU") 2014-09 Revenue from Contracts with Customers (ASC 606) using the modified retrospective
method for contracts that were not completed as of January 1, 2018. This did not result in an adjustment to retained earnings upon
adoption of this new guidance, as the Company's revenue was recognized based on the amount of consideration, we expect to
receive in exchange for satisfying the performance obligations. The core principle underlying the revenue
recognition ASU is that the Company will recognize revenue to represent the transfer of goods and services to customers in an amount
that reflects the consideration to which the Company expects to be entitled in such exchange. This will require the Company to
identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time,
based on when control of goods and services transfers to a customer. The Company's revenue streams are recognized at a point
in time, based on when control of goods and services transfers to a customer. The ASU requires the use of a new five-step
model to recognize revenue from customer contracts. The five-step model requires that the Company (i) identify the contract with
the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable
consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction
price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies each
performance obligation. The application of the five-step model to the revenue streams compared to the prior guidance did not result
in significant changes in the way the Company records its revenue. Upon adoption, the Company evaluated its revenue recognition
policy for all revenue streams within the scope of the ASU under previous standards and using the five-step model under the new
guidance and confirmed that there were no differences in the pattern of revenue recognition. The Company derives its revenues from professional
service contracts with its customers with revenues being recognized upon delivery of services and products. Persuasive evidence
of an arrangement is demonstrated via professional service contracts and invoices;
and the services price to the customer is fixed upon acceptance of the professional services contract. The Company recognizes revenue
when professional service is rendered to the customer by the Company and collectability of payment is reasonably assured. These
revenues are recognized at a point in time after all performance obligations are satisfied. During the year ended June 30, 2018, one
customer accounted for 85.1% of the Company's total sales. INCOME TAXES The Company uses the asset and
liability method of accounting for income taxes in accordance with ASC Topic 740, "Income Taxes." Under this
method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current period and (ii)
deferred tax consequences of temporary differences resulting from items that have been recognized in an entity's
financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that
includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported, if based on the
weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax
assets will not be realized. ASC Topic 740.10.30 clarifies the accounting
for uncertainty in income taxes recognized in an enterprise's financial statements and prescribes a recognition threshold
and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken
in a tax return. ASC Topic 740.10.40 provides guidance on derecognition, classification, interest and penalties, accounting in
interim periods, disclosure, and transition. The Company has no material uncertain tax positions for any of the reporting periods
presented. RESEARCH AND DEVELOPMENT EXPENSES Research and development expenses are expensed
in the period when they are incurred. For the years ended June 30, 2019 and 2018, the Company incurred research and development
expenses of $168,248 and $361,616, respectively. CONCENTRATION OF CREDIT RISK The Company maintains cash in
accounts with state-owned banks within the PRC. Cash in state-owned banks less than RMB500,000 ($73,246) is covered by
insurance. Should any of these institutions holding the Company's cash become insolvent, or if the Company is unable to
withdraw funds for any reason, the Company could lose the cash on deposit with that institution. The Company has not
experienced any losses in such accounts and believes it is not exposed to any risks on its cash in these bank accounts. Cash denominated in RMB with a U.S. dollar
equivalent of $1,395,104 and $1,031,485 at June 30, 2019 and 2018, respectively, were held in accounts at financial institutions
located in the PRC‚ which is not freely convertible into foreign currencies. In addition, as of June 30, 2019, $1,321,858
are not covered by insurance. While management believes that these financial institutions are of high credit quality, it also continually
monitors their credit worthiness. The Company, its subsidiaries and VIE have not experienced any losses in such accounts and do
not believe the cash is exposed to any significant risk. Cash held in accounts at U.S. financial institutions are insured by the
Federal Deposit Insurance Corporation or other programs subject to certain limitations up to $250,000 per depositor. As of June
30, 2019, the cash balance of approximately $672,000 was maintained at U.S. financial institutions, of which approximately $422,000
was not insured. Cash was maintained at financial institutions in Hong Kong, and were insured by the Hong Kong Deposit Protection
Board up to a limit of HK $500,000 (approximately $64,000). As of June 30, 2019, the cash balance of approximately $4,006,000 was
maintained at financial institutions in Hong Kong, of which approximately $3,942,000 of cash balance was not insured. FOREIGN CURRENCY TRANSLATION AND COMPREHENSIVE INCOME (LOSS) The accounts of the Company's Chinese
entities are maintained in RMB, the accounts of the Hong Kong subsidiary and the accounts of the U.S. parent company are maintained
in United States dollars("USD") The accounts of the Chinese entities were translated into USD in accordance with ASC
Topic 830 "Foreign Currency Matters." All assets and liabilities were translated at the exchange rate on the balance
sheet date; stockholders' equity is translated at historical rates and the statements of operations and cash flows are translated
at the weighted average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive
income in accordance with ASC Topic 220, "Comprehensive Income." Gains and losses resulting from foreign currency transactions
are reflected in the statements of operations. The Company follows FASB ASC Topic 220-10,
"Comprehensive Income(loss)." Comprehensive income(loss) comprises net income(loss) and all changes to the statements
of changes in stockholders' equity, except those due to investments by stockholders, changes in additional paid-in capital
and distributions to stockholders. The exchange rates used to translate amounts
in USD to RMB for the purposes of preparing the consolidated financial statements were as follows
June 30,
2019 2018
Period end USD:RMB exchange rate 6.8668 6.6553
Average USD:RMB exchange rate 6.8263 6.6667 RECENT ACCOUNTING PRONOUNCEMENTS In February 2016, the FASB issued ASU
2016-02 Amendments to the ASC 842 Leases. This update requires a lessee to recognize the assets and liability (the lease
liability) arising from operating leases on the balance sheet for the lease term. When measuring assets and liabilities
arising from a lease, a lessee (and a lessor) should include payments to be made in optional periods only if the lessee is
reasonably certain to exercise an option to extend the lease or not to exercise an option to terminate the lease. Within a
twelve-month or less lease term, a lessee is permitted to make an accounting policy election not to recognize lease assets
and liabilities. If a lessee makes this election, it should recognize lease expense on a straight-line basis over the lease
term. In transition, this update will be effective for public entities for fiscal years beginning after December 15, 2018,
including interim periods within those fiscal years. The adoption of the ASU 2016-02 will have a significant impact on the
Company's consolidated financial statements due to the new lease agreement signed in July 2019 (see note 11). In February 2018, the FASB issued ASU 2018-02,
Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive
Income. The amendments in this Update affect any entity that is required to apply the provisions of Topic 220, Income Statement
– Reporting Comprehensive Income, and has items of other comprehensive income for which the related tax effects are presented
in other comprehensive income as required by GAAP. The amendments in this Update are effective for all entities for fiscal years
beginning after December 15, 2018, and interim periods within those fiscal years. Management does not believe the adoption of this
ASU would have a material effect on the Company's consolidated financial statements. In August 2018, the FASB issued ASU 2018-13,
"Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement"
("ASU 2018-13"). ASU 2018-13 removes, modifies and adds certain disclosure requirements in Topic 820 "Fair Value
Measurement". ASU 2018-13 eliminates certain disclosures related to transfers and the valuations process, modifies disclosures
for investments that are valued based on net asset value, clarifies the measurement uncertainty disclosure, and requires additional
disclosures for Level 3 fair value measurements. ASU 2018-13 is effective for the Company for annual and interim reporting periods
beginning August 1, 2020. The Company is currently evaluating the impact of this new standard on its consolidated financial statements
and related disclosures. In May 2019, the FASB issued ASU 2019-05,
which is an update to ASU Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses
on Financial Instruments, which introduced the expected credit losses methodology for the measurement of credit losses on financial
assets measured at amortized cost basis, replacing the previous incurred loss methodology. The amendments in Update 2016-13 added
Topic 326, Financial Instruments—Credit Losses, and made several consequential amendments to the Codification. Update 2016-13
also modified the accounting for available-for-sale debt securities, which must be individually assessed for credit losses when
fair value is less than the amortized cost basis, in accordance with Subtopic 326-30, Financial Instruments—Credit Losses—Available-for-Sale
Debt Securities. The amendments in this Update address those stakeholders' concerns by providing an option to irrevocably
elect the fair value option for certain financial assets previously measured at amortized cost basis. For those entities, the targeted
transition relief will increase comparability of financial statement information by providing an option to align measurement methodologies
for similar financial assets. Furthermore, the targeted transition relief also may reduce the costs for some entities to comply
with the amendments in Update 2016-13 while still providing financial statement users with decision-useful information. ASU 2019-05
is effective for the Company for annual and interim reporting periods beginning August 1, 2020. The Company is currently evaluating
the impact of this new standard on its consolidated financial statements and related disclosures. Management does not believe that any
other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the
accompanying consolidated financial statements. |
